Azerbaijan: Turkmenistan Rejects Offers To Resolve Oil Dispute

An Azerbaijani official said last week that the country's attempts to resolve its Caspian dispute with Turkmenistan have been rejected. As Azerbaijan President Heidar Aliyev visits Washington this week, the problem continues to stall progress on the division issue for all Caspian nations.

Boston, 12 September 2000 (RFE/RL) - Azerbaijan has renewed its offer to develop a disputed Caspian oilfield jointly with Turkmenistan, but the issue remains deadlocked despite the cost of the disagreement to both countries.

Last week, Ilham Aliev, vice president of the Azerbaijani state oil company SOCAR, offered to set up a joint operating company with Turkmenistan to exploit the Caspian border field which is claimed by both countries. But Aliyev said Turkmenistan has refused and continues to claim two other fields where Azerbaijan is already pumping oil.

Aliev, the son and possible successor to President Heidar Aliev, said that Ashgabat would be unable to develop the Kyapaz oilfield on its own because of the high cost of building new infrastructure and access through Turkmenistan, which calls the field Serdar.

Azerbaijan has been offering to divide the oilfield's resources since 1997, when Turkmenistan lodged its claims and convinced the Russian government to cancel contracts between SOCAR and the Lukoil and Rosneft oil companies. Turkmenistan has been unwilling to settle for anything less than the entire field, which contains an estimated 50 million tons of oil.

Baku's latest bid for a compromise comes as President Aliyev visits Washington this week for an annual oil conference sponsored by the U.S.-Azerbaijan Chamber of Commerce. Officials are scheduled to sign a contract for development of an onshore field that is believed to be less significant than Kyapaz-Serdar.

The pace of Azerbaijan's oil discoveries has slowed since the border dispute erupted, although the country has found huge deposits of gas. But the Caspian feud has aggravated problems for both oil and gas development on both sides of the Caspian shore.

Because development of the deposit has already been delayed for more than three years, it cannot help Azerbaijan as it tries to find enough oil to fill the planned pipeline to the Turkish port of Ceyhan. In retaliation, Azerbaijan has demanded a half-share in the capacity of the trans-Caspian gas pipeline from Turkmenistan, reducing the benefits for Ashgabat.

Attempts to put the oilfield issue aside or to pretend that it does not affect the trans-Caspian gas plan have proved fruitless. Azerbaijan, which faces a gas shortage this winter before its own fields are developed, also has been unable to tap into exports from Turkmenistan.

But in addition to the delays and lost benefits for both countries, the argument over Kyapaz-Serdar has created a puzzle for all Caspian nations that may be impossible to solve.

Because there is still no legal formula for dividing the Caspian among the five shoreline nations, there is no framework for settling the Kyapaz-Serdar dispute. Any formula for division also seems unlikely unless the claims to bilateral border resources can be resolved first.

Russia's representative for the Caspian, Viktor Kaluzhny, recently proposed that all disputed border resources be shared, but Turkmenistan rejected the plan. Azerbaijan and Iran also found other aspects of the Russian division formula objectionable.

Without an agreement on dividing the Caspian, all offshore projects may be open to challenge by one country or another, even those developments that are already under way. Sooner or later, the situation is likely to entail costs or delays for all Caspian countries as each moves closer toward new offshore deals.

A meeting of foreign ministers in Tehran on the Caspian question is expected later this month. Turkmen President Saparmurat Niyazov also has made a bid for talks in Ashgabat.

But neither effort appears likely to be successful until Azerbaijan and Turkmenistan can untie the knot they have wound around Kyapaz-Serdar.